To fight strong yen, Mazda heads to Mexico

Plant could open as early as 2014

TOKYO -- Mazda Motor Corp., which exports 80 percent of its Japan-made vehicles, is racing to overhaul its money-losing North American manufacturing operation to offset the profit-eating effects of a strong yen. But its Michigan assembly plant isn't part of the revival plan.

Instead, CEO Takashi Yamanouchi wants to start exporting Mazda2 and Mazda3 small cars to the United States from a factory planned for Mexico as early as 2014.

Those shipments should displace cars imported from Japan, thus relieving Mazda of exchange rate losses and giving it lower costs and cheaper labor than back home.

"If the yen continues its appreciation, then we can ship products from Mexico" to the United States, Yamanouchi told Automotive News on Nov. 7. "The plant is to open in 2013, so by 2014 -- if all goes successfully -- it will contribute to some volume. We are still studying how to do that.

"With the yen at historic highs, we have to do something," he said, speaking through an interpreter.

Hitting the target

But if Mazda is unable to ramp up shipments from Mexico by 2015, the automaker would still be battling the strong yen and might miss its U.S. sales target for that year of 400,000 units, Yamanouchi warned. So a quick ramp-up is critical.

"If we can do that [import from Mexico], we don't want to change the original target," he said.

Mazda is trying to line up local suppliers so vehicles built there will meet the North American Free Trade Agreement's local-content requirements for barrier-free trade among the United States, Canada and Mexico. Mazda likely will tap Japanese suppliers that already are in Mexico servicing Nissan Motor Co.'s extensive operations there, and bring some of its own from Hiroshima, Yamanouchi said.

Countermeasures do not include keeping a Mazda model in production at AutoAlliance International Inc., the assembly plant in Flat Rock, Mich., that it owns jointly with Ford Motor Co. That plant has been Mazda's sole North American manufacturing outpost since 1985.

In June, Mazda said it will stop building the Mazda6 sedan there after the current generation ends its run sometime next year.

"When that product is gone, for the time being there won't be any products in the Michigan plant. How we use that capacity afterward is something we need to discuss with Ford," Yamanouchi said. "We don't have any intent to dissolve the joint venture at this point."

Yamanouchi declined to say when a decision would be made.

But it is not unprecedented to have one partner take a breather at AutoAlliance. The plant was building only Mazda products for a period before the Ford Mustang was added in late 2004.

More exposed

Mazda is more exposed to losses from volatile exchange rates than many of its Japanese rivals because of its high ratio of exports from Japan. But Yamanouchi doesn't see that changing.

To save Japanese jobs, he wants to keep Japanese output at the current level of 900,000 units a year, just a hair below its domestic straight-time capacity of 1 million vehicles.

"That's a commitment we have to the local communities," he said.

Yamanouchi's strategy will depend on pushing aggressively into emerging markets in which Mazda has lagged behind bigger global players. He wants to put more plants in emerging markets, source more parts from those regions and boost sales in those markets.

The Mexico plant originally was planned as a base for exporting to Brazil, among other Latin American markets. Mazda recently expanded capacity at its plant in Nanjing, China, and has begun assembling cars from knockdown kits in Malaysia and Vietnam.

It is also looking at production in Russia. And Mazda aims to buy more parts from low-cost countries.

It currently imports about 20 percent of the parts that go into its Japan-made vehicles. Yamanouchi forecasts that the ratio of imported parts can be lifted to 30 percent. Going above that is unlikely, he says, because importing bulky parts is too expensive.

"Right now we are working hard to reach that level," he said. "Reaching that is part of the plan by March 2016, and of course we need to pull ahead that target."